(Kitco News) – U.S. House Representative Maxine Waters (D-CA), ranking member of the House Financial Services Committee, said that lawmakers are making progress on passing stablecoin legislation and that the final version of the stablecoin bill could be ready soon.
Waters made the comments during an interview with Bloomberg on Wednesday, saying that she had been working “very well together” with committee chair Patrick McHenry (R-NC) and other lawmakers in the U.S. Senate on the stablecoin legislation.
She said the stablecoin bill needs only a “few more tweaks” before it can progress in the House.
“It’s been very complicated,” Waters said. “We have so many entities that are involved [...] everybody has had something to say. We’ve had to recognize all of those concerns. In doing that, in the final analysis, it’s about making sure that investors and that the people are protected and that we don’t have a stablecoin bill where [...] companies don’t have the assets that they say that they have.”
“We have to ensure that they have those assets to back up stablecoins,” she said.
Waters added that they are working closely with their counterparts in the Senate to help ensure the bill's approval. “We’ve met with Schumer. Talked with Sherrod Brown. We’re on our way to getting a stablecoin bill in the short run,” she said.
Senator Brown (D-OH), chair of the Senate Banking Committee, recently said he was open to passing stablecoin legislation as long as his concerns were addressed.
Senate stablecoin bill
While the House is working diligently to craft legislation that will be accepted by both sides of the aisle, Senators Kirsten Gillibrand (D-NY) and Cynthia Lummis (R-WY) introduced the Lummis-Gillibrand Payment Stablecoin Act on April 17.
The bipartisan legislation “creates a clear regulatory framework for payment stablecoins that will protect consumers, enable innovation and promote U.S. dollar dominance while preserving the dual banking system,” a press release announcing the Act said.
“In order to meet the growing demand for our ever-evolving financial industry, we need to craft legislation that strikes the careful balance of establishing a clear and workable framework for stablecoins while protecting consumers,” said Lummis. “Together, Senator Gillibrand and I worked to preserve our dual banking system and install guardrails that protect consumers and prevent illicit finance while ensuring we don’t derail innovation. Passing this bipartisan solution is critical to maintaining the U.S. dollar’s dominance and making certain the U.S. remains the world leader in financial innovation.”
Senator Gillibrand said passing a regulatory framework for stablecoins “is absolutely critical to maintaining the U.S. dollar’s dominance, promoting responsible innovation, protecting consumers, and cracking down on money laundering and illicit finance.”
The Lummis-Gillibrand Payment Stablecoin Act proposes the introduction of a $10 billion issuance limit on non-bank stablecoin firms, bans “unbacked” algorithmic stablecoins, and requires stablecoin issuers to hold one-to-one cash or cash-equivalent reserves.
According to a research note released by S&P Global Ratings on Tuesday, the passage of a stablecoin-focused bill in the U.S. – such as the Lummis-Gillibrand Payment Stablecoin Act – could “encourage” banks in the country to start engaging with the stablecoin market.
“The U.S. dollar is the dominant peg for stablecoins, yet most stablecoin sponsors aren't subject to specific U.S. regulations,” the report said. “That could change with the introduction of the Lummis-Gillibrand Payment Stablecoin Act, which promises a legislative and regulatory framework to bolster confidence in stablecoins, accelerate institutional usage, facilitate bank issuance, and simplify the provision of digital custody services.”
S&P said approval could encourage banks to get involved in issuing U.S. dollar-pegged stablecoins and potentially spell trouble for large non-U.S entities that issue stablecoins, like USDT-issuer Tether.
“Tether, the largest stablecoin by outstanding volume, is issued by a non-U.S. entity and therefore not a permitted payment stablecoin under the proposed bill,” the report said. “This means that U.S. entities couldn't hold or transact in Tether, which may reduce demand while boosting U.S.-issued stablecoins.”
However, approval wouldn’t spell complete doom for USDT, as S&P pointed out that “Tether transaction activity is predominantly outside the U.S., in emerging markets, and driven by retail users and remittances.” USDT currently has a market cap of $110 billion and is the largest U.S. dollar-pegged stablecoin in the industry.
They described stablecoins as a potential “key pillar of financial markets,” citing the BlackRock USD Institutional Digital Liquidity Fund (BUIDL) – a blockchain-based investment fund designed to offer U.S. dollar yields through tokenization – as evidence for the “efficiencies and enhanced settlement security” of stablecoins in tokenizing assets and digital bonds.
“Assuming the bill is approved, and that relevant banking regulation follows, the new rules may offer banks a competitive advantage by limiting institutions without a banking license to a maximum issuance of $10 billion,” S&P said.
The approval of the stablecoin bill could also lead to the introduction of new digital asset custody service providers, S&P said, as it removes the SEC’s requirement that custodians report digital assets on their balance sheet.
“That policy not only differs from the general treatment of financial assets held in custody, which are generally off-balance sheet, but creates a capital requirement that likely discourages financial institutions from providing digital asset custody in the U.S. The new rules would remove that barrier and could lead to greater competition,” the report concluded.